Opinion
Civil Action No. 02-10868-RWZ
October 29, 2002
MEMORANDUM OF DECISION
Dr. David L. Reicher, a Maryland resident, bought seven disability insurance policies from Berkshire Life Insurance Company of America ("Berkshire"), a Massachusetts corporation, between May 1980 and February 1991. Together with Affiliated Podiatrists P.A., another Maryland resident, he also bought two Overhead Expense policies and two Disability Buyout policies. On June 2, 2000, Dr. Reicher became disabled and thereafter submitted claims and supporting documents to Berkshire under all of the policies. Because of some of Dr. Reicher's outside activities, Berkshire found that he was, at best, residually disabled, and further stated that it could not make a decision regarding payment of benefits due to outstanding requests for relevant documents.
He is CEO and President of Data Trace Publishing Company. He contends that his involvement with the company is solely as an investor.
Approximately one year later, Dr. Reicher and Affiliated filed a complaint in Maryland state court against Berkshire and its authorized agent, claiming damages for breach of contract for failure to refund premiums and pay disability benefits, and seeking declaratory relief under each policy. Alternatively, plaintiffs asserted negligent misrepresentation claims under each policy for Berkshire's failure to advise Dr. Reicher that his activities at Data Trace would nullify his disability coverage. In the spring of 2002, The Guardian and Berkshire made payments to the plaintiffs under the disability policies. After a trial on the issue of the valuation of Dr. Reicher's ownership interest in Affiliated (to determine the amount payable on the two disability buy-out policies), the court entered a final judgment dismissing all the breach of contract claims as moot since the defendants paid the benefits. The claims for a declaratory judgment were resolved by stipulation or dismissed as moot, and the remaining negligent misrepresentation claims were dismissed by the plaintiffs.
Berkshire was subsequently acquired by and merged into The Guardian Life Insurance Company of America ("The Guardian"), a foreign corporation. The Guardian continues to do business in Massachusetts through its wholly-owned subsidiary, Berkshire, the other named defendant.
This suit, based on the same policies as those in the Maryland case, was filed in the Massachusetts state court on April 8, 2002. Here, based also on the same allegations set forth in the Maryland suit, plaintiffs assert eleven counts of violating Chapter 93A of the Massachusetts General Laws. Defendants removed the action to this Court, and filed a Motion to Dismiss, on res judicata grounds or, alternatively, on grounds that the law of Maryland, not that of Massachusetts, governs.
Despite the identity of allegations in the two cases, the doctrine of res judicata does not apply. An action that is dismissed as moot does not have a res judicata effect. Pujol v. Shearson/American Express, Inc., 829 F.2d 1201, 1209 n. 3 (1st Cir. 1987). See District of Columbia Hospital Association v. District of Columbia, 73 F. Supp.2d 8, 12 (D.C. 1999) (stating that where a previous suit was dismissed as moot, a subsequent suit is not barred by res judicata since the merits of the claims were never tested.). See also Payne v. Panama Canal Co., 607 F.2d 155, 158 (5th Cir. 1979) (stating that dismissal without prejudice "on grounds of mootness does not serve as a final adjudication on the merits. . . ."). Because the earlier claims alleging breach of contract for failure to refund premiums and pay disability benefits were dismissed as moot, the merits of those claims were never tested. Therefore, the present claims, which assert violations of Chapter 93A on the same factual basis, are not barred by res judicata.
In stating that Maryland law, not Massachusetts law, applies in this case, defendants have raised the real issue: whether Chapter 93A may be invoked by plaintiffs, who are residents of Maryland, to recover for their out-of-state loss. Section 11 of Chapter 93A provides that "[n]o action shall be brought or maintained . . . unless the actions and transactions constituting the alleged unfair method of competition or the unfair or deceptive act or practice occurred primarily and substantially within the commonwealth." M.G.L.A. c. 93A § 11. Three factors determine whether an action occurred "primarily and substantially" in Massachusetts: "1) where the defendant committed the deceptive acts and practices; 2) where the plaintiff received and acted upon the deceptive or unfair statements; and 3) the situs of the plaintiff's losses due to the unfair or deceptive acts or practices." Arthur D. Little International, Inc. v. Dooyang Corp., 928 F. Supp. 1189, 1208 (D.Mass. 1996).
In the present case, the first factor favors the plaintiffs who point out that the alleged unfair practices "occurred primarily and substantially in Massachusetts and were committed by Massachusetts residents employed by a Massachusetts corporation." However, the second and third factors weigh heavily against them. The second factor is of particular import: the location of the deceptive acts is not "the linchpin of the deception for the purpose of the consumer protection law . . . Rather, the critical factor is the locus of the recipient of the deception at the time of reliance." Clinton Hospital Assoc. v. Corson Group, Inc., 907 F.2d 1260, 1265-6 (1st Cir. 1990). For example, Paragraph 46 of the Amended Complaint alleges that Berkshire wrote to plaintiffs' Maryland counsel informing them that Dr. Reicher was, at best, residually disabled. Paragraph 48 asserts that Berkshire further informed Maryland counsel that it could not make a decision regarding payment of benefits due to outstanding requests for relevant documents. According to the facts alleged by plaintiffs, they received the denial of payments in Maryland. See Bushkin Associates, Inc. v. Raytheon Co., 473 N.E.2d 662, 672 (Mass. 1985) (holding that "statements made in Massachusetts but received and acted on in New York" were not actions that occurred "primarily and substantially" in Massachusetts.). Plaintiffs, of course, also experienced their consequent losses from the refusals to pay in Maryland. On balance, an analysis of the three factors, particularly given the significance of the second one, compels the conclusion that the alleged unfair and deceptive trade practices did not occur "primarily and substantially" in Massachusetts. As the First Circuit has stated: "non-Massachusetts residents are here attempting to recover for the allegedly unfair trade practices of a corporation in Massachusetts, under a statute designed to protect against in-state frauds." Compagnie De Reassurance D'Ile De France v. New England Reinsurance Corp., 57 F.3d 56, 90 (1st Cir. 1995). Because the plaintiffs' claims are not viable under Chapter 93A, defendants' Motion to Dismiss is allowed. Judgment may be entered for defendants.